Analyse the Problem of Accounting Fraud in a Listed Company and Evaluate Possible Solutions Essay

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Analyse the problem of accounting fraud in a listed company and evaluate possible solutions

In 2001, Enron Corporation went into bankruptcy due to the disclosure of false information in its financial statements. Similarly, when Lehman Brothers collapsed there was no evidence that it had ever publicly disclosed certain detrimental accounting information. Cases of accounting fraud such as these have become increasingly serious. Accounting fraud can result in creditors and stockholders losing confidence in listed companies, which negatively affects the whole worldwide economy. This paper will briefly analyse some of the causes of accounting fraud in listed companies, and then examine and evaluate three possible solutions to address the …show more content…
Han (2005) argues that at present ethics education is virtually nonexistent in the accounting profession in China, and that, therefore, it is necessary to establish and improve the profession’s ethics education. In United States, the importance of ethics is being minimized by its curriculum’s refusal to integrate ethics as required courses (Bean & Bernard 2009). Based on these arguments, ethical education in accounting for university students could be essential for improving independence when these students work as CPAs in the future.

In addition, the boards of accountancy in at least 26 states in the USA require CPAs to pass an ethics exam or course, either before sitting for the Uniform CPA Examination or as a condition of certification (Ronal & Hirschwailer 2009). Based on this evidence, continuing ethical training for auditors plays a crucial role in improving the independence of auditing.

Some scholars believe that strengthening laws and regulations regarding public supervision of the accounting system is the ultimate way to solve this problem. This includes establishing an audit case appraisal committee and raising standards for determining accounting fraud. Generally, current auditing standards have such high requirements that a court would struggle to define inappropriate or even illegal behaviour among auditors due to the
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